CAG asks states to disclose off-budget borrowings in A/Cs
India's Comptroller and Auditor General, K Sanjay Murthy, urged state governments to fully disclose their off-budget borrowings. He highlighted that these liabilities have reached ₹90.51 lakh crore. States are advised to reduce these debts over time. Accurate reporting is crucial for understanding the true scale of state finances and ensuring fiscal transparency. This will aid informed decision-making by policymakers.
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Context
The (CAG) has urged state governments to disclose their off-budget borrowings and phase them out, citing concerns over fiscal transparency. A new CAG report, 'State Finances 2024-25', highlights significant fiscal stress among states, noting that aggregate expenditure has grown by 131% over the last decade, with total liabilities reaching ₹90.51 lakh crore.
UPSC Perspectives
Economic
This article highlights the critical issue of off-budget borrowings (OBBs)—loans taken by state-owned entities or special purpose vehicles (SPVs) where the principal and interest are repaid from the state budget. Because these do not directly appear on the state's balance sheet, they mask the true extent of state debt and bypass the borrowing limits set under of the Constitution and state-level (FRBM) targets. The CAG report reveals that state liabilities have reached 27.89% of combined GSDP, with 13 states exceeding the debt threshold recommended by the . The high proportion of revenue expenditure (over 83%) compared to capital expenditure indicates that states are borrowing heavily to fund everyday expenses (like salaries and pensions) rather than productive asset creation. This reliance on OBBs distorts key macroeconomic indicators and threatens long-term debt sustainability. UPSC frequently asks about the components of fiscal deficit, the mechanisms of public debt management, and the implications of off-budget financing on macroeconomic stability.
Governance
The CAG's intervention underscores its role as the constitutional auditor of both the Union and the States under to . The demand for transparent disclosure of OBBs is a push for better financial accountability and fiscal transparency. By hiding debt off-balance sheet, states obscure the true financial health of their exchequers from legislatures and the public, undermining democratic oversight over public finances. The CAG’s call for "practical and workable approaches" to improve data reporting is essential for informed policymaking. The central government has recently taken steps to curb this practice by explicitly including off-budget borrowings in a state's net borrowing ceiling (NBC). Questions in the Mains often focus on the efficacy of constitutional bodies like the CAG in ensuring financial accountability and the challenges of enforcing fiscal discipline at the sub-national level.
Polity
The issue of state borrowing touches upon the complex dynamics of fiscal federalism in India. Under , a state cannot borrow without the consent of the Government of India if it has any outstanding central loans. The Centre uses this provision to enforce fiscal discipline, effectively limiting how much states can borrow. The use of off-budget mechanisms is often a state response to these strict central constraints and the rigidity of targets. This creates friction between the Centre's mandate for macroeconomic stability and the States' need for developmental autonomy. Furthermore, the report notes that social and economic services account for two-thirds of state expenditure, reflecting their primary role in welfare delivery under the . The tension between welfare obligations and fiscal constraints is a recurring theme in federal relations. Students should analyze how fiscal control mechanisms impact the autonomy of states and the role of institutions like the in mediating these issues.